In a speech at CNBC’s “Delivering Alpha” conference, Katie Koch, CEO of the TCW Group, stated that a recession is inevitable for the U.S. economy. She emphasized that recessions are a natural part of the economic cycle and noted that the country hasn’t experienced a significant one in over 15 years. Despite the strong consumer spending and labor market, Koch believes that the Federal Reserve’s interest rate hikes will eventually take their toll on the economy. She advises investors to play defensively in anticipation of the impending economic downturn.
From an investment perspective, Koch recommends a conservative approach, including holding cash, agency debt, mortgage-backed securities, and Treasuries. She also suggests focusing on companies with longer-duration capital. However, she expressed concerns about consumers and companies that have relied on the “extend and pretend strategy” to delay loan payments, predicting that they will struggle to secure financing in this environment.
While Koch acknowledges the bearish outlook for the economy, she believes it is crucial to be patient and allow higher interest rates to work their way through the system before assessing the full impact. Overall, her analysis underscores the need for investors to prepare for an upcoming recession and make cautious investment decisions.